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About Michael J. Miller

Miller, who was editor-in-chief of PC Magazine from 1991 to 2005, authors this blog for PC Magazine to share his thoughts on PC-related products. No investment advice is offered in this blog. All duties are disclaimed. Miller works separately for a private investment firm which may at any time invest in companies whose products are discussed in this blog, and no disclosure of securities transactions will be made.

GoingGreen 2011: What Will It Take To Succeed?

Two sessions at yesterday’s GoingGreen conference expounded on what it will take for alternative energy companies to succeed in the market. After “Greentech Corporate Strategic Partnering & Investment,” we broke for lunch and resumed with “Hottest Emerging Sectors in Alternative Energy.”

As valuation levels for startups have dropped and as larger companies have more cash on their balance sheets, there have been more strategic investments, with most deals in biofuels, solar, and wind. It is becoming a more global market, Chen said in the opening, with companies from Europe and China joining their U.S. companies in investing, and lately many more deals in Europe.

Siemen’s Goette talked about a startup that creates chargers for electric vehicles. Siemens helped both to fund and sell products based on the company’s technology through the larger firm’s sales channel.

Clark of IBM was particularly excited about the intersection of greentech and smart buildings/smart cities. He discussed analytics for the “smart grid” and IBM’s work with a company called eMeter. Eighty-five percent of the deals it does are driven from requirements from IBM’s various businesses.

GE’s Angel said his firm invested in a Chinese company for wind technology, as well as one that has control software for managing the smart grid aimed at data centers. For that product, GE was a major customer and is working on creating a solution around that. In general, though, GE is a financial investor looking for the best companies, not those that fit within the larger GE.

Lehot of law firm Sheppard Mullin asked about issues that strategic investors face. Goette recalled one time, out of about 150 investments, Siemens ended up making a significant investment in a competitor, and then stepped down from the board. He also talked about separating the investment side from the strategic side, as it takes longer to create things like OEM arrangements than financing.

The world needs innovation in energy, said host van Lierop, drawing attention to the melting ice caps in northern Canada. Alternative energy investment faces challenges like high capital demands and large incumbent players. However, van Lierop is convinced it can produce great returns.

Van Lierop asked: What are the investment criteria for clean technology?

Nuttall of Woodland Biofuels, which created ethanol from 28 different feedstocks, said all the normal investing criteria apply. Even though sometimes they are hidden by subsidies, technology capable of generating positive cash flow returns is important now. Sectors that are capable of gaining significant government support are very interesting, and that’s part of the equation. Companies should have business model flexibility and should be able to mesh with the existing infrastructure.

Patel of Leyden Energy, which has created longer-lasting batteries aimed mostly at consumer electronics, said it is important to work with larger companies. But avoid listening to them too much, he warned, as such companies often are satisfied with incremental improvements when bigger changes are needed.

Van Lierop asked: Where are the biggest opportunities outside of your own firms?

Nuttall mentioned firms that could produce fuels at a competitive price today, such as KiOR or his own firm, which is building a large demonstration plant to show a cost of production near one dollar per gallon.

Hart of Sierra Energy, which focuses on “gasification,” using modified blast furnaces to turn waste into clean synthetic gasoline, said companies like Chevron could make a bigger difference if they got well behind alternative energy. His company hopes to break ground on a demonstration plant in 2012, but wants mostly to license the technology to other companies.

Van Lierop asked: What technologies needed more investment?

Patel said that many battery technologies take six years to get to the market and impatient investors won’t wait. That’s why his firm has looked at consumer electronics first.

Hart said the issue was back-end solutions for using biofuels.

Van Lierop asked: Can disruptive technologies really be developed in the U.S., given how things like the Prius were not able to be made in North America?

Nuttall said yes, noting that biofuel companies have been funded even though none have made money yet.

Hart thought the government, which will try to pick winners, should leave the process to the market.

The economy will have to wean off of oil within the next 20 years, van Lierop said. At this point, he sees no reason as a VC to be involved with another smart grid company when he could look at things like nuclear fusion, water desalination or biofuels that could really change the world.

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